Financial tips from millionaires and billionaires
Wednesday, 26 September 2018
Amassing great wealth through investing isn't about luck. In fact, many investors who have become wealthy typically follow strict rules to manage and grow their fortunes.
Here is a compilation of financial tips from some of the most successful investors in the world.
Leverage your 401(k)
Fidelity analyzed its 401(k) clients who amassed more than $1 million for retirement and found most of them earned less than $150,000 a year. Most of them also started saving early and contributed around 14 percent of their paycheck.
They took advantage of their employer's matching contributions and chose mutual funds that invested in stocks. They also wisely rolled over their retirement funds when they changed jobs either into the new employer's plan or an Individual Retirement Account (IRA).
More risk doesn't always mean more returns
Becoming wealthy through investing is not all shopping sprees and "damn the torpedoes." According to renowned investor, author, professor, and executive Leonard C. Green, some successful investors are actually risk averse. In many cases, they look for opportunities to minimize risk, while always making steady progress toward their goals. On the other hand, Green asserts, high-rolling, winner-take-all investors tend to risk everything, and more often than not, end up with nothing.
Don't assume debt securities are always safer than stocks
Warren Buffett, chairman of Berkshire Hathaway and probably the most famous investor in the world, is full of financial wisdom. In a 2018 interview with CNBC he stressed stocks are, in his opinion, "progressively less risky" for long-term investors than bonds.
"It is a terrible mistake for investors with long-term horizons – among them, pension funds, college endowments and savings-minded individuals — to measure their investment 'risk' by their portfolio's ratio of bonds to stocks. Often, high-grade bonds in an investment portfolio increase its risk, " Buffett told CNBC.
Spanx founder Sara Blakely and Dallas Mavericks owner Mark Cuban, both billionaires, told Money they lived as frugally as possible, only spending on what was necessary.
"I did things like having five roommates and living off of macaroni and cheese, and I was very, very frugal. I had the worst possible car—those types of things," Cuban said in the Money interview.
Blakely, the youngest self-made female billionaire, said her apartment served as Spanx's headquarters even when she could have afforded something else.
"For me, it's about being as scrappy as I possibly can," she told Money.
Don't get too greedy
Carl Icahn, activist shareholder, philanthropist, and the man behind Icahn Enterprises, said when he sold his holdings in Netflix: “When you are lucky and/or smart enough to have made a total return of 457 percent in only 14 months, it is time to take some of the chips off the table."
Just as there's always a bottom when it comes to a stock's value, there ultimately is a top as well. As Icahn says, once you've realized substantial gains on an investment, it can make sense to cash out and be satisfied with your haul. Wait too long, and you could get burned.
Berkshire Hathaway owned 5 percent of Tesco when the U.K. supermarket company's sales started to falter and executives began heading for the exits. But even so, Buffett waited to sell, resulting in a $400 million loss. Later, he admitted he should have sold sooner. “In the world of business, bad news often surfaces serially: You see a cockroach in your kitchen; as the days go by, you meet his relatives," he said.
In other words, when you see an indication there are problems with an investment or company, dragging your feet could be costly.
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